"We're in a period of consolidation as we work through last week's gains," said Robert Pavlik, chief investment officer at Oaktree Asset Management. "We're seeing pressure from financials on the overall market."
The Dow Jones Industrial Average fell 65 points, or 0.5%, to 13,248, as 21 of its 30 components traded in the red, with General Motors Corp. fronting the Dow's declines, its stock down 3.2%.
Overall, financial stocks AIG , American Express Co. , Citigroup Inc. and J.P. Morgan Chase & Co. weighed down the blue-chip average.
Shares of the nation's top brokerages came under pressure after several analysts trimmed their earnings outlooks, with Goldman Sachs , Bear Stearns and Lehman Bros. all sliding. .
Shares of Merck & Co. , also a Dow component, fell 0.6%. The drugmaker backed its 2007 earnings target and said it expects adjusted profit for 2008 to be in a range of $3.28 to $3.38 a share. Analysts had been forecasting earnings of $3.39 for 2008. .
Away from the Dow, Nokia shares dropped 3.3% after the world's largest maker of mobile phones predicted margins for the next few years would be about in line with market expectations. .
The S&P 500 fell 9.6 points, or 0.6%, to 1,462 and the technology-laden Nasdaq Composite dropped 17.3 points, or 0.6%, to 2,619.
On the New York Mercantile Exchange, crude-oil futures edged below $89 a barrel as traders awaited a decision from the OPEC oil cartel on Wednesday.
Elsewhere on the NYME, gold futures rallied above $800 an ounce. .
The dollar slipped against most major counterparts, but jumped against Canada's currency, after the Bank of Canada cut interest rates. .
Trading volumes showed 1.3 billion shares trading on the New York Stock Exchange and 2.0 billion trading on the Nasdaq Stock Exchange. Declining stocks topped gainers by 2 to 1 on both the NYSE and on the Nasdaq.
Among technology shares, Dell Inc. fell 1.4% after it announced a plan to buy back $10 billion worth of its stock.
"The Dell news isn't helping tech all that much," Pavlik said. "Buy backs used to power stocks forward earlier this year but now it's back to fundamentals with growth and earnings forecasts."
Chinese internet firm Baidu.com Inc. rose 0.6% after news that its American depositary shares are part of the Nasdaq 100 as of Tuesday.
In a move seen as likely foreshadowing Federal Reserve action ahead, the Bank of Canada on Tuesday said it would cut its target interest rate by a quarter point, citing troubles in the U.S. housing market. .
There was little on the economic calendar Tuesday.
"We'll likely stay in a range until the employment report [Friday], and depending on how that plays, we'll be looking at next Tuesday, when the Street is looking for 50 basis points from the Fed," Oaktree's Pavlik said.
San Francisco Fed President Janet Yellen said in a speech Monday that developments since the last rate policy meeting in October suggest a bigger slowdown than she expected.
Yellen became the third Fed official in a week to suggest that further rate cuts may be advisable on Dec. 11.
Analysts at Action Economics noted that the market was now pricing in close to a 50% chance of a half-point interest-rate cut next week.
"This does look a little too aggressive in our view, but the Fed may surprise us yet, especially if Friday's employment number is weak," he said.
U.S. Treasurys pulled lower amid profit-taking on a day devoid of economic data. .
Overseas, European shares declined amid ongoing weakness in the banking sector. . In Asia, markts were mixed.
By Nick Godt